An empirical investigation of FDI inflows in developing economies: Terrorism as a determinant factor

Abstract

The international allocation of capital flows is determined by various political, institutional, social and financial conditions. Recipient countries proceed to significant reforms in order to increase their attractiveness towards multinational companies and foreign investors. The purpose of the present paper is to empirically examine the determinant factors of foreign capitals in the developing economies with terrorist activity from 1970 to 2016, focusing on foreign direct investment (FDI) inflows. The sample of the study consists of 18 developing countries that present terrorist activity, of different geographic regions. Using FGLS in panel data the study concludes that terrorism is a deterrent factor of FDI and that both traditional and emerging determinants affect FDI inflows in the recipient countries. The contribution of the study refers to the fact that an extended econometric model of FDI is tested and presented. Suggestions for policymakers are presented. © 2019 Elsevier B.V.